TRG | The Bottom Line – 4/21

TRG wrapped up its Q1’23 industry survey season this week, and the consistent theme from RVs to rocks has been that business conditions are not as bleak as headlines would suggest. In general, supply chains have improved, as have inventory levels. “Shortages are getting better but still a lot of delays, especially appliances,” one 2023 C&I Conference presenter noted. Pricing actions are being met with varied success, from solid gains to at least being a backstop to multiple pricing actions from 2022. Except for commoditized products, pricing isn’t slipping. A theme that has not changed is 2023 will be all about volume preservation. For TRG’s construction & industrial focused companies, Q1’23 faces tough comps, which we believe is understood by the market, as is the reality of 2H’23 comps easing more meaningfully. As one C&I Conference presenter noted, residential is in a “different place today than we were last year.” Another adding that permits are picking up with mortgage rates settling. A flooring industry joining TRG’s conference noted that “non-res remains strong – schools and hospitals are doing well, Covid-dollars fueling spending that needs to be spent in 2023-2024.” Overall, distributors to heavy materials producers joining TRG’s C&I Conference agree that softness in residential has been offset by solid non-res trends. Finally, a full-truck load carrier surmised, “outside of anything happening globally, we don’t see anything scary…our top customers (which are Fortune 200 type companies) are optimistic about 2023.” DR Horton’s (DHI) blow out earnings this week is a testament of the early 2023 “it’s not that bleak” theme, the stock rallying 6-7% on its earnings beat.